A layman guide to health insurance-india- Part II

Most health insurance companies are using the services of TPA (Third party administrators) for collection of documents and settlement of claims. For those purchasing health insurance policies are to be careful in some of the aspects listed below so that their claim is settled in time and without any dispute:Insured person should ensure that he intimate the insurer or the TPA about pre-authorization for cashless facility. One should not leave this to hospital even though it is listed. Of course it is the duty of the hospital to complete the process and forward the pre-authorization form to the insurer on insured person behalf.Insured person can get his claim settled only when the insured person is hospitalized for 24 hours or more. But this is not applicable to day care procedures like radiation, chemotherapy etc. as covered by the policy.Pre-existing diseases are not covered generally for first 2- 4 years. So check this while taking the policy. Also some exclusion will be there like dental, cataract etc. So one should read carefully before choosing a policy under health. He should prefer one with many advantages.We should read the fine prints of the policy to know about expenses that are not covered by the policy.Also we should check the limits and sub-limits under each category of expenses like room rent, operation charges, intensive unit care charges, % of co-payment charges to be paid by the insured.In case of reimbursement claims, we should inform insurer/TPA immediately or at least within seven days of hospitalization. The deadline for the submission of bills along with claim is normally 14 to 30 days.The insurer/TPA may demand original bills for reimbursement. But it is not necessary to give any original medical reports like pathological tests, x-rays, ECG etc. Copies can be given if asked.If we are not satisfied with services of insurance company, we can switch to other health insurance companies as health insurance portability has come into effect already.Some of the common grounds for rejection of claims area) Delay in intimationb) Delay in submission of original/copies of documents.c) Inadequate documentations.d) Claiming for pre-existing diseases during the cool off period of 2-4 years of start of the policy( only as per policy)f) Claim is for diseases which are excluded under exclusions.g) Fraudulent claims.So before choosing the policy, check the company which is issuing policy whether it is a good management or not. Also see the comparative advantages between health policies of different companies and take time to read the main items as mentioned above

.C.R. Venkata Ramani(AICWA)

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A layman’s guide to health insurance in India – Part I

Health insurance is a help for those who cannot afford to pay huge amount in one outgo. In a health insurance policy, the insured pays small amount called premium and in turn the insurer assures to take care of the medical expenses of the insured and his dependents. The premium will be high if medi-claim is taken for all individuals if insured is having a family of 4 members . Hence he can go for family floater policy.Family Floater Policies: Most health insurance plans give the flexibility of covering up to 4/5 members of the family under the same plan with a slightly higher premium than an individual health insurance policy. It gives the flexibility of choosing say 3 or 5 lakhs of cover for the entire family. If one member in the family is hospitalized and uses about Rs. 3 lakhs for his treatment, then the rest 2 lakhs can be availed by others. It is very unlikely that more than 1 or 2 members would require hospitalization in the same year. Hence the family floater serves the purpose whoever in the family falls ill. If health insurance is taken at younger age, the premium is less. There are two different type of health insurance. One is Regular health insurance and other one is critical illness insurance.Regular health insurance is related to petty health problems which are not critical and of short duration and less costly. Critical illness refers to the diseases which are mostly non-curable / critical or require huge money for treatment. Critical illness insurance insures diseases like cancer, paralytic stroke, major organ transplant, kidney failure etc. These diseases require long continued treatment. On the other hand, the regular health insurance is covering the expenses only on hospitalization of the insured within particular duration. In critical health insurance , the insured gets the amount in lump sum but it is not so in case of regular health insurance where billed amount only is paid though it may be cashless or reimbursement policy. It is better to consult proper insurance agent before choosing a policy and tell your requirements. If any one wants to obtain cashless claim i.e. no cash payment across the counter and insurance company pays directly to the hospital, then he should know about the list of network hospitals that offer medical service he needs. He should note some hospital nearby with telephone numbers in his diary or in some important place so that in case of emergency, he can go to that hospital and arrange admission of him/her or dependents insured. He can inform the hospital about the insurance and mostly they will arrange all formalities for cashless facility if they have tie up for this facility. Once this is done, he just needs to sign the bill at the time of discharge of the hospital. The insurance company will pay the amount to the hospital. The premium money under health insurance will not be returned at the end of the period of insurance as in the case of life insurances policies (ofcourse excluding whole life policy) but will get income tax exemption up to Rs. 15000 every year under sec.80D . For senior citizens 60 and above, additional exemption is there upto Rs.20000/-.Thus it protects a salary earner/bread winner of a family from falling into any financial crisis due to any medical emergency especially of his/her aged parents and also helps in tax saving. He can lead a peaceful life without thinking about any uncertainties as it covers the medical and hospitalization expenses of the insured and dependents. Normally health insurance is taken for one year and some insurers allow it for two years. Premium varies every year based on cost of hospitalization in general which is on increasing trend. Those who continue in one specific insurance company, he/she gets discounts for no claim. Also after 2 or 4 years, it may allow covering even pre-existing diseases also.Health insurance policy covers the following basic costs in case of hospitalization due to any accidents/ diseases that doesn’t form a part of the permanent exclusions of the policy.Room, boarding expenses as provided by the hospital/ nursing home.Nursing expensesSurgeon, anesthetist, medical practitioner, consultants, specialist feesOperation theatre charges, surgical appliance, medical and drugs, chemotherapy, radiotherapy and similar expenses.Normal exclusions on a health insurance plan vary marginally company to company. What one should pay special attention is whether pre-existing diseases or treatment for common but expensive treatments, such as cataract or hernia are covered in the policy or not.The stereotype expenses that are not covered by a general health policy of most of the insurance companies are: Any disease/injury during first 30 days of commencement of policy (except accidental injury) Permanent exclusions could comprise of the following illnesses: Vaccination, inoculation, change of life, cosmetic or aesthetic treatment, plastic surgery unless necessitated due to accident or as a part of any illness Dental treatment or surgery of any kind unless requiring hospitalization Cost of spectacles contact lenses and hearing aids Convalescence, general debility, “run-down” condition, sterility, venereal disease, Hospital / nursing home charges not forming part of any treatment Nuclear perils and war group of perils Naturopathy or non-allopathic treatment Any internal congenital illness Pregnancy and childbirth related diseases Expenses arising from HIV or AIDS and related diseases Use or misuse of liquor, intoxicating substances or drugs War, riots, strike, terrorism acts, nuclear weapon induced treatment.Pre-existing diseases: In most medi-claim policies Pre-existing diseases are defined as any disease that the insured had (whether he was aware of it or not) at any time prior to the commencement of the policy with the insurance company and it also includes any complications arising in the future from such pre-existing disease. Most insured are normally not aware about the inclusive definition of pre-exising diseases (about complications arising from the pre-existing disease). Since the most common pre-existing diseases in India are diabetes and high blood pressure (hyper tension) and these are responsible for a wide spectrum of serious diseases such as heart blockages, organ failure, etc. the insured are taken aback when the insurance companies deny payment of claim on grounds that these diseases arose from an pre-existing condition and hence will be classified as an pre-existing disease. So insured should take care of this definition and arrange to cover pre-existing diseases also especially for elders. Some health polices will cover it after a cooling off period of few years (normally 2 to 4 years). Some insurance companies have even stricter condition that coverage will be provided only if no advice, care or treatment is taken for the pre-existing condition during the cooling off period. So the person taking the policy has to study these and then take a decision for health policy.Some of the other terms used in Health Insurance policies:Hospitalization Cash Benefits: This benefit entitles the customer to cash benefits for every completed day of hospitalization, which helps him to take care of the increased financial burden incurred at the time of hospitalization, such as loss of earnings away from work and other expenses.Cashless facility: There is a network of hospitals tied up with each insurance company which accepts the insured’s medical identity card (issued by the insurance company) for providing cashless facility to the insured. Hence either part of expenses like 80% or entire expenses is covered by the policy and the individual doesn’t need to spend from his pocket.Pre-hospitalisation and Post-hospitalisation benefits: Some medi-claim policies provide for up to 60 to 90 days of pre-hospitalisation and post-hospitalisation benefits, i.e. the cost of medical tests, medicines, scans, etc. This is usually provided under maternity benefits and treatments which do not require hospitalisation.Ambulance Charges In most cases the ambulance charges are taken up by the policy with or without cash limits and the policy holder usually doesn’t have to bear the burden of the same.Health check up Some health insurance policies have a facility of free health check-up for the well being of the individual if there is no claim made for certain number of years.No-Claim Bonus: Some health insurance policies provide a no-claim bonus. If there has been no claim in the previous year, i.e. if the person covered has not availed any hospitalisation benefit, then a bonus is declared; either by reducing the premium or by increasing the sum assured by a certain percentage of the existing premium.Top up and the super top up plan in health insurance: A top-up policy is to provide reimbursement of extra-ordinary expenses arising from one single illness above a certain known insured limit for top up.(it is called deductible in insurance world). For e.g. one has taken a mediclaim policy for Rs.2 lakhs and a top up policy for 4 lakhs with deductible of Rs.2 lakh.He incurred medical expenses for single disease like angioplasty which is around Rs.4 lakhs. Under mediclaim policy, he will be given 2 lakhs and in top up, deducting the deductible amount of Rs.2 lakhs from 4 lakhs of total expenses, he will get additional 2 lakhs. Thus he will get full expenses due to top up. But one drawback in this top up is that if the expense of 4 lakhs incurred is 2 lakh each on two occasions (Rs.2 lakhs+2 lakhs) , then he will not get any amount under top up policy. In order to remove this problem, the insurance companies brought in another product called super top up policy which covers for all illnesses during the year put together and any eligible expenses incurred over and above the deductible amount is eligible for reimbursement. So the insured can combine all expenses put together in the covered insurance period and claim the balance amount above deductible amount. In the above case, if the policy is super top up one, then the insured will get full balance amount of medical expenses allowed under policy for the full covered year deducting deducible amount of Rs.2 lakhs and in the above case , it is 2 lakhs under super top-up policy. So super top up policy is the best one if any one thinks to take additional policy under normal mediclaim. Claims under these kind of policies are much lower and only a few people are likely to exhaust the deductible amount and hence the premiums are very reasonable and hence attractive.

C.R. Venkata Ramani(AICWA)

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Penalty on Pre-payment of Home loan on floating rates is removed for HFC; for Banks, wait!

The banks thrive on the margins between deposit rates on deposits accepted from customers and loan rates on loans given to the needy. Normally, the margin is 3 ot 4%.(NIM) From this margin, banks have to manage all their administrative and other expenses and also get some profit for the pain taken for these transactions. But nowadays, the competitive deposit rates accepted is around 10% and hence the banks can lend to public at an interest rate of more than 13%. Due to competitive atmosphere in lending business, sometimes banks get interest margin on loans 2% only and hence in order to jack up it to 3%, banks devised many new charges on customers . Prepayment penalty is one the chargeslevied by Indian banking system. This charges varies from bank to bank and it ranges from 1% to 3% of outstanding loan amount.Definition of pre-payment charges: It is a charge levied by a lender on the borrower who repays all or part of the principal of a loan before it actually becomes due. This charge compensates the lender for the loss of interest that bank would have earned , had the loan remained as per the original agreement till its complete repayment as per agreement.Why clients wants to repay earlier:The clients when they have surplus money want to clear the debt so that they can reduce the interest amount payable which is going up fast. Also due to increase in interest rate, the EMI is also going up and many clients are unable to pay the EMI. Though banks allow increased repayment period in order to keep EMI constant, Banks are in problem when the loans repayment period is already long i.e. more than 25/30 years. Refinancing of loans at lower rate and good service by other financial institutions encourages clients to think of pre-closing their loans with the existing banks. Banks justify this levy by following points:Breach of contract and hence penalty: Banks based on past trends of deposit determine how much to lend. Since deposits are received for various periods right from 15 days to 5 years or more i.e. short term and long term, banks are planning to lend the money received for short term and long term. If any mismatch is there between deposits and loans, then banks will be loser as either it has not fully utilized the deposits properly or it has to take loan from other banks/RBI to bridge the gap between deposits and loans which is costly. In lending, banks have three types now: 1.Fixed rate 2.Floating rate 3.Teaser rates. In Fixed rates and teaser rates, banks may lose if deposit rates increases. In floating rate, the rate can be revised upwards which safeguards the profitability of banks. But banks are charging penalty on pre-payment irrespective of any type of lending. Of course some banks are allowing prepayment of loans with loanee’s own earned money.Holding surplus funds due to pre-payment:If any loanee pre-pays the loan, then banks needed some time to find another needy for lending. For this time gap, banks levy the charge. Ofcourse, there are many avenues for keeping the surplus funds but it carries less interest rate.Not letting the clients to go to other banks: Penalty for pre-payment discourages clients to switch over to some other banks. This helps banks to retain customer base intact. Losing customer costs bank heavily by way of fees to agencies to procure business or loss on incentives spent for creating new customer base/retaining existing customers.To save costs: Nowadays, banks are depending on Direct selling agency(DSA)for lending business. They are paying fees ranging from 1% to 3% to DSA on the amount of loan lent to the clients procured by DSA. If the concerned clients prepay the loan in shorter period, then this cost of fees cannot be covered except by way of penalty.To insure safety of funds: Due to inflation and increase in EMI, there is chance of losing money as many clients fail to repay the loans. At least these type of charges on all loans will safeguard some % of losses.Increase in Repo rates/CRR: The concept of penalty on pre-payment came when RBI started increasing the Repo rate and Cash Reserve ratio. Repo rate is the rate at which the central bank lends money to bank. CRR is the % of cash to be kept in RBI based on deposits. Since repo rate is paid by banks to RBI to get funds from RBI when they are short of funds but promised clients to give loans and mismatch of deposits vs loans.What is the present position:The competition commission of India, based report of Director General (Investigations) has taken up the case with Govt/RBI/NHB against banks for misusing their dominant position in lending when clients in need of money and entering into anti-competitive agreements.The National Housing Bank(NHB), which is the housing finance regulator, in a circular asked all housing finance companies not to levy any pre-payment charges or penalty on floating loans if the loan is pre-closed by the customer through any funding source. But it is not fully agreed by Housing finance companies. NHB made a distinction of loans among fixed and variable and favoured exemption from payment of penalty only to floating rate loans. For fixed rate loans, it asked the banks to waive penalty if they pay from their own resources. If refinance method from other banks are attempted for fixed rate loans, then penalty can be levied. NHB has also asked housing finance companies to apply uniform interest rate whether it is old customers or new customers as risk profile is same in both group. Charging of higher interest from old customers against new customers puts them to a great disadvantage, besides being discriminatory. The practice also generally lacks in transparency and fairness and banks should desist from this.On 19.10.2011, NHB has issued directive to all housing finance companies for which it lends money not to levy penalty on pre-payment of home loan.NHB regulates 54 HFCs, including HDFC, LIC Housing Finance and Dewan Housing Finance.“Floating rate loans: According to NHB’s circular, HFCs can’t charge a prepayment penalty from customers whose loan is on floating rates even if money used to prepay the loan is borrowed from a bank or a non-banking finance company (NBFC).Fixed rate loans: Even customers on a fixed interest rate won’t be charged a penalty if they are prepaying from their own sources. However, if they borrow from a bank or NBFC, they may be subjected to a penalty, depending upon the HFC’s terms and conditions.Fixed-cum-floating rate loans: If customers have a fixed-cum-floating rate loan, the rules for fixed loans will apply till the time their loan is fixed and then the rules for floating loan will apply. In other words, if customers don’t want to pay a penalty,they will have to prepay from their own sources till the timetheir loan is on a fixed rate; thereafter, they may pay from any source of income for floating part and still not pay a penalty”.RBI has to take steps to cover banks for this step. To improve customer service in the banking industry, RBI has released 10 point action plan as a sort of recommendation in the Banking Ombudsman conference. One of the recommendations is that banks must stop enforcing pre-penalty clauses on customers seeking an early end to their indebtedness. “Banks must not recover pre-payment charges on floating rate loans. Floating rate loans pass on the interest rate risk from banks to customers. Banks only substitute interest rate risks with potential credit risks,” the release said. Banks may also offer long-term fixed rate housing loans to their customers and address their asset liability mismatch (ALM) issues by recourse to the Interest Rate Swaps (IRS) market. This recommendation of RBI will be transferred into directive if banks are not taking steps to correct their position in respect of penalty on pre-payment of loans.The Supreme Court will, in an appeal filed by the State Bank of India against a National Consumer Disputes Redressal Commission order, decide whether it is right for banks and housing finance companies to charge pre-payment fees on customers repaying loans ahead of their tenure.The Commission had, in a recent case ruled that prepayment clauses are restrictive trade practices, which restrict the consumers’ right to avail loans at a lesser rate of interest. It called upon the country’s largest bank to refund the Rs 40,000 it had collected as pre-payment charges from Usha Vaid, who had shifted to another bank. The forum said it appeared that this amount was charged as punishment to the consumer who sought transfer of the loan amount to another bank, giving a lower rate of interest.The Home loan customers are eagerly waiting for the verdict of Supreme court in the above case. RBI may like to act positively before verdict of Supreme court in order to keep its name as regulator. Already the leading Bank SBI has withdrawn pre-payment penalty on home loans on all floating rate home loans.C.R. Venkata Ramani(AICWA)Previously worked as Cost consultant with Dun&Bradstreet, Chennai on contract basis for working out profitability of one overseas bank

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Why bank stocks fall in indian market? Is it justified?

Taken from www.shvoong.com ( good site of me):
In India, today i.e. 24.11.2010 around 2 pm, CBI arrested totally 8 persons , some from banks and LIC housing finance and some from Finance consultancy services in Mumbai. The media , without knowing the basic things, raised hue and cry that banking system is having some loopholes for bad debts etc. Indian stock market lost nearly 200 points on hearing this and casualty is bank stocks. But slowly as further news pour in, it appears that indian banking system is intact sound under the watchful eyes of Reserve bank of India ;only certain vested individuals in banks took some bribe money to process loans quickly taking the help of financial consultant companies as middle men. as usual the financial conultant companies takes a cut of 1% to 2% as their fees.Though some real estate companies name appeared in cbi report, it is only as references and not accused. No company employees are arrested by cbi and only details like sanction date of loans etc. were asked by cbi. so it appears to be isolated instance of corruption by officials of public sector banks. Since there are so many layers in verifying and sanctioning loans, there is little chance of any loan without proper security. ofcourse there may be few loans with insufficient security when top echleon interferes with procedure and it may be limited one for political or personal reasons but cases may be limited.

Thus it appears from the news report that
1.Only few individuals who are dishonest have taken bribe for arranging the loans at the earliest.They include some middle and top level managers . Use of brokers for arranging loans is done by companies in order to get the loans quickly. It is just like brokers in RTO office, Govt offices etc. as companies and individuals do not have time to waste their time and energy at the doors of babus. Since IT is not developed wantonly in these sectors to make officers to fear about delay and for answering delay, these things are happening in India. It is a routine one and it is a known fact and supreme court has already spoken sadly about this quoting that this can also be made as regular cost.
2. In LIC housing finance, leakage of information may have been done to some middlemen who may use it in stock market for purchase and sale of shares. Now lot of consultants are there to advise clients when to purchase or sell shares based on some inside information. May be this is the cause for that to get information. If LIC/LIC housing finance wants to purchase certain shares, these information may leak earlier to certain individuals so that some may corner those shares earlier in order to get benefit. This may be reason for giving money to obtain inside information.So it is only personalised matters and there may not be any problem with the loans and assets quality hypothecated with the banks. There may be some 1 or 2% of stray cases of insufficient assets for which banks already provide bad debt provision.